If the production of a good causes a negative externality, the efficient level of output of that good is zero.

Question

Quizplus · Accepted Answer

The efficient level of output is not necessarily zero, but rather the level where the marginal social cost of producing the good equals the marginal social benefit. It may be possible to produce some units of the good with a positive net benefit to society, but beyond a certain point the negative externality outweighs the benefits and production should be reduced or eliminated.

If the Production of a Good Causes a Negative Externality